Presently, a customer must physically carry some change or small bills in order to conduct day-to-day transactions including paying vending machines, parking meters, laundry machines, toll machines, transportation fares, etc. for respective products and services. This can be very inconvenient for the customer if he/she is not carrying enough small currency or does not have exact change in some circumstances. For example, when a potential purchaser of a soda from a vending machine is out of change or dollar bills to make the purchase, the potential purchaser must then get change from larger bills from another source or forgo the purchase all together. This is a problem both for the purchaser who is inconvenienced and the vendor who may lose a sale.
Attempts have been made to develop a system that would obviate the need to carry around a large amount of change and small bills. One such system is a pre-paid money card that is debited each time it is used. A subway system such as the Washington D.C. Metro system utilizes such pre-paid fare cards. A commuter purchases the card with a certain monetary value stored on it. The card is debited for an amount based on the distance traveled until the balance falls below the cost of the necessary fare.
While the above system does overcome the need to carry tokens or change on a constant basis for commuters, it has some significant disadvantages. For example, when a commuter discovers that the fare level stored on the card is not sufficient to pay for the required fare at a turnstile, the commuter must inconveniently go to a different, specified location to increase the balance on the card with additional money. The specified location may be either a machine or a human teller, and long lines can form at such a location during rush hours, which might further delay the commuter. Another disadvantage is that the fare cards can only be used in a closed system which in this case is the metro system and cannot be utilized by the card user outside the system to freely spend his pre-paid amount. Finally, any money left on the card unspent is not credited back to the card user and may be eventually lost at the expense of the user.
Another example of a cashless transaction system is one involving a university dining card. A certain amount of money is purchased on the card at the beginning of each semester to be used to purchase food or other items. The student then has his/her card debited for each purchase made at a university food concession or store. This eliminates the need for the student to carry around small bills and change in order to eat. It also allows the student to use the same card for a variety of food places.
However, the university dining arrangement suffers similar disadvantages to those of the subway system. The arrangement is also a closed system in that the card only works within the university. In addition, the student must purchase a large dollar amount on the card in advance and is restricted to use the money for food or other university items only. When the balance on the student's card is depleted, he/she again must go to a specified location other than the location of a transaction or point-of-sale (POS) to purchase additional credit on the card.
Still another example of a cashless transaction is one involving credit cards where credit is extended to a cardholder by a financial institution to cover purchases from participating merchants. The financial institution pays the merchant the purchase price less a service charge fee and later bills the cardholder for the purchase price.
Such credit card transactions, however, need to be attended by a salesperson who normally makes an imprint of the credit card, calls a processing center via a dial-up modem to obtain authorization, and verifies the cardholder's signature to prevent fraud. This involves significant transaction costs, which while acceptable for large purchases, is not cost effective for relatively small purchases (e.g., a can of soda from a vending machine).
Another system that allows for purchases without use of cash is a debit card system. A chain of retail stores may permit processing of a debit card which, unlike the processing of a credit card, results in immediate electronic debit of the user's bank account. A user normally provides the retailer with the debit card which is magnetically read using a "swipe" type magnetic reader. The user is then asked by the merchant to secretly key in his/her personal identification number (PIN) into a keyboard, and the merchant keys in the amount of the purchase. A POS debit request digital message is then transmitted either directly over an ATM network (or indirectly via a dial-up telephone link to a central computer) for receipt by the user's bank. The bank transmits a confirmation message to the POS terminal over the ATM network which, when received, assures the merchant that the funds are available and have been transmitted to the merchant's account.
Disadvantages associated with a debit card system are that the card user usually has to maintain a minimum balance in the account in order to use the card, and may be required to pay bank fees for such an account. The debit card user also has to check the account balance from time to time to ensure sufficient funds to cover his future purchases. Otherwise, the card user could be charged for any over-draft. Finally, like a credit card transaction, a debit card transaction incurs significant transaction costs resulting in part from the requirements of having a salesperson attend the sales. As such, the debit card system is again not cost-effective for relatively small purchases.
Still another system for conducting cashless transactions is disclosed in PCT International Publication No. WO 91/16691 published Oct. 13, 1991. The disclosed value transfer system comprises a computer, a value meter and a bulk purse within a bank, and exchange devices and electronic purses (e.g., integrated circuit cards or smart cards) outside the bank. In accordance with the disclosure, the bulk purse is capable of having cash values loaded to and redeemed by electronic purses via a value meter. The electronic purses communicate with each other through an exchange device to transfer values in transactions which are off-line from the computer. The value meter keeps float value records for the computer to derive a net value released to the bulk purse. Each float value record is non-specific with regard to individual draw-downs and redemptions. This system has obvious disadvantages: the holder of an electronic purse must connect to a bank via computer to increase his/her monetary level stored in the electronic purse. Therefore, if a user purchases an item without sufficient funds in the purse, he/she could not immediately purchase the item. The user would still need to go on-line with the bank to reload the purse and then complete the transaction.
Accordingly, it is desirable to have a cost-effective and efficient system whereby a card user can conduct transactions of relatively small values without using cash, without worrying whether the card has sufficient funds, and without timely interruptions for verification, authorization, and/or obtaining additional funds on the card.